What is price? / Why need a price? A measure of perceived value for goods or services (Business Dictionary 2016). Prices provide a mechanism for the company to obtain value back from company (Iacobucci 2014, p107).
“Is your price right?” is one of the important marketing issues which could vital for the success of business and it’s all about standing out from the crowd.
After all, if your price isn’t right for your customers, how can they be expected to purchase your products?
Setting the right price could improve customer satisfaction and increase how much you sell. It means that the right price would attract your potential and target customers and increase your revenue.
But where to start???
Below, the short video gives the briefly introduction of setting the right price.
There are many different methods of pricing strategies in business. Although there is no one sure-fire, understanding the psychological pricing strategy can help.
The strategy of psychological pricing is used consumers’ emotional response and poor awareness of price to boost sales and maximize the company’s profit (Iacobucci 2013, pp. 116-117). It can be a useful tool for increasing and attracting consumers to make a purchase, including:
The secret behind setting the right price:
At the beginning, you can think about the questions which are shown below:
Do you often see the price end in 99?
Do you have any experience of purchasing products end in 99?
Do you ever think about why the price often end in 99?
For the past decades, many sellers start to use charm pricing which is means the prices that end in 9 or 99. According to several researchers, customers are more likely to buy those products which end in 9 or 99 (Carver & Padgett 2012) because they believe the price end in 9 or 99 is a ‘special number’ with discount. Also, people usually see prices from left to right. They may only impress the first number of price than the whole price (Kotler and Keller 2012). For example, it’s reliably known that $8.99 is more charming than $9. However, the truth is customers not always purchase the cheapest price than they think when they buy something which end in 9 or 99.
Here is an example from Apple. All of the Apple’s Mac is end in 9 or 99. It means that using charm pricing for sell the product could be a useful and common way to attract customers to purchase due to customers prefer to pay less.
Who does not like free?
‘Buy one, get one free’ or ‘Buy one, get one 50% off’ which one would you prefer?
Promotional pricing is a method to attract customer’s attention to purchase the product. This pricing strategy includes providing coupons, lowering the price of a product or offering specials, for instance, ‘Buy one, get one free’.
Moreover, language can also be a tool when using promotional pricing strategy for attracting customers to purchase the product.
Although the ‘Buy one, get one free’ is same as ‘Buy one, get one 50% off’. Consumers are more prefer BOGOF, even though the meaning of these two options are identical.
The ‘Buy one, get one free’ pricing strategy is effective all the time. Because consumers would be happy when they think they will get something else in return. It seems like getting more. In other word, people are more likely to purchase something if they can get something “free”. Promotional pricing is a pricing strategy which is based on using customers’ mental accounting (Iacobucci 2013, p. 117).
Do you think placing expensive one next to standard is an effective strategy?
Comparative pricing is using the simple method which is offering two similar products at the same time but making one product’s price higher than the other to attract consumers. This is a psychological game for customers who need to make a choice between two similar products but have different prices. If consumers visually distinguish the price from a reference price, they trigger a fluency outcome.
This strategy is usually work well with electronic brands, which place side by side bread maker with similar quality but different prices. It the functions of these two bread makers are similar, customers are more likely to choose cheaper one.
Charm pricing, promotional pricing and comparative pricing are three of the common psychological pricing strategies for you to implement into your works.
So get out there, and start to get smart with your pricing strategy!
By Mao Dong Ren
Carver, J, & Padgett, D 2012, ‘Product Category Pricing and Future Price Attractiveness: 99-Ending Pricing in a Memory-Based Context’, Journal Of Retailing, vol. 88, pp. 497-511, retrieved 31 August 2016, ScienceDirect, EBSCOhost.
Iacobucci, D 2013, Mm4, n.p.: Mason, Ohio : South-Western ; Andover : Cengage Learning [distributor], , retrieved 31 August 2016, DEAKIN UNIV LIBRARY’s Catalog, EBSCOhost.
Kotler, P, & Keller, K 2012, Marketing Management, n.p.: Upper Saddle River, N.J. : Prentice Hall, c2012., retrieved 31 August 2016, DEAKIN UNIV LIBRARY’s Catalog, EBSCOhost.
Business Dictionary 2016, Price, Business Dictionary, retrieved 31 August 2016, <http://www.sciencedirect.com/science/article/pii/S0019850104001129>.
Iacobucci, D 2014, Marketing Management (MM), 4th Edition, South-Western, Cenage Learning, Mason.